The 2015 Oil Bust Was Even Worse Than You Thought

The sheer number of bankruptcies and low creditor recoveries in 2015-2016 may add up to an oil and gas collapse that exceeds even the telecom crash of the early 2000s, Moody’s Investors Service says in a new report.

The massive slump in crude and natural gas prices that began in 2014 took a severe toll on oil and gas companies. After companies filed for bankruptcies, their creditors recovered only a fraction of their investment. For example, Moody’s said, the recovery rate of 2015’s exploration and production (E&P) bankruptcies averaged 21 percent, “catastrophic compared with the historical average of 58.6 percent for all recorded E&P bankruptcies filed prior to 2015.”

Reserve-backed loans (RBL) took a hit, too, but not to the extent of other debts. The average recovery for those loans backed by oil and gas reserves was 81.1 percent, as opposed to the average 98.1 percent of similar bankruptcies prior to 2015, Moody’s said.

The global oil glut has fueled a decline that has put U.S. corporate defaults to the highest number since 2009. Since 2015, almost 100 E&Ps have filed for bankruptcy in North America alone, according to data from Haynes & Boone LLP. Many of the larger companies had stronger balance sheets and were able to stave off restructuring. But as the downturn lingers, larger E&Ps have been pushed into bankruptcy. And Moody’s says the filing rate in 2016 is on track to exceed that of last year.

“E&P bankruptcies have only accelerated in 2016, with the 2016 year-to-day figure within our rated universe about twice 2015’s total,” they said.  


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